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EUR/USD falls below parity for first time in 20 years

currency-newsEUR/USD falls below parity for first time in 20 years
The US dollar rallied again on Wednesday, following the release of a hotter-than-expected US inflation print.

So far the pound is struggling to attract support this morning, with GBP/EUR muted at €1.1832 and GBP/USD slipping to $1.1849. GBP/CAD is rangebound at C$1.5409, while GBP/AUD and GBP/NZD retreat to AU$1.7476 and NZ$1.9340, respectively.

Turning to today’s session, will a lull in notable data see currency markets driven primarily by market sentiment?

What’s been happening?

The US dollar rallied again on Wednesday, following the release of a hotter-than-expected US inflation print.

The ‘greenback’ initially surged after June’s CPI figures reported inflation rocketed to 9.1%, with the spike resulting in the EUR/USD exchange rate falling below parity for the first time since 2002.

A market correction almost immediately reversed these gains before the US dollar resumed its upward trend later in the evening amid speculation the Federal Reserve could deliver a 100bps rate hike later this month.

This fluctuation in the US dollar also led to volatile trade in the Euro due to the pairing’s strong negative correlation.

Also influencing EUR exchange rates was the publication of the latest Eurozone industrial production figures, with the euro finding some support as May’s release beat expectations.

Meanwhile, the UK’s latest GDP release also beat forecasts in May, with a surprisingly robust expansion of growth initially buoying the pound.

However Sterling was unable to hold on to these gains for long, with the currency quickly falling victim to UK political uncertainty.

What’s coming up?

Looking ahead, in the absence of any high impact data, currency market movements may be dictated by geopolitical developments.

This could see the US dollar rally if global recession fears and inflation concerns result in investors favouring safe-haven assets.

In the UK we could see uncertainty over the Conservative leadership race continue to act as a headwind for the pound, particularly if the frontrunner is seen as being more antagonistic towards Europe.

Finally, the direction of the euro may depend on the outlook for European energy security, with EUR exchange rates potentially weakening if there are any more warnings about a potential gas shortage.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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